Turbulence in the air

Gargi Parsai

THERE ARE two scenarios that are emerging for the civil aviation and the tourism sectors out of the haze of the collapsed World Trade Center and the fractured Pentagon building in the United States. One is the immediate fallout of rising costs from cancelled flights, unprecedented drop in air traffic and huge cancellations of tours, travel and hotel bookings. The other can only be anticipated after U.S. retaliation against terrorism in the region.

There is a certain unanimity in the industry that if the present situation is ``terrible'', the post-retaliation scenario will be ``horrific''. What is hurting the Indian industry most is the prevailing uncertainty about U.S. action.

Anticipation of air strikes in Afghanistan is affecting the market sentiment more than the week-long cancellation of flights and hotel reservations in the aftermath of the September 11 attacks.

The airline industry, in particular, is faced with additional insurance premiums, added security costs and anticipated loss in revenue on account of operating low capacity. Fortunately, the aviation fuel price did not rise, otherwise several airlines would have been on the brink of bankruptcy.

In India there is a nearly 40 per cent drop in inbound air traffic and outbound is lower by 60 per cent. The tourism sector has reported varying loss of arrivals during September, between 35 and 60 per cent. Hotel room occupancy has also dipped by about 30 per cent in the immediate period after the terrorist attacks.

Air cargo suffered a revenue loss due to the decline in export and import cargo by about 30 to 40 per cent after September 11. For obvious reasons there are no shipments to the U.S. and Canada and to some European countries.

The impact for the industry has been so sharp that several international airlines, particularly the U.S. carriers, United Airlines and Northwest Airlines, have pulled out of New Delhi. Even Scandinavian Air Service is toying with the idea of withdrawing, if traffic does not pick up.

For Air India, initial cancellations caused a loss of Rs. 9.5 crores in terms of grounded flights and hotel accommodation for stranded passengers. The airline has now curtailed its direct flights to New York and Chicago, stopped its weekly London terminator service and rerouted a service to Singapore. Despite this, and the pullout of United Airlines, Air India flights are still not full to the U.S. and London. Insurance conditions from leasors have forced the airline to ground all four of its recently-leased aircraft.

The domestic airlines are also facing a tough time. The major player in the private sector, Jet Airways, has curtailed its flights to a large extent and is continuing to so on a day-to-day basis.

It has resorted to several cost-cutting measures which include wage cuts for senior managers, freeze on recruitment, no overtime for employees, no extra entertainment allowance for business promotion and no overnight hotel stays on business trips. Despite this, the airline is not sure it will be able to stay afloat in 2001-02.

Indian Airlines has so far not resorted to any flight curtailment, committed as it is to fulfilling its ``social obligations'' even if its flights are half empty. One example is the political compulsion to operate nearly empty daily flights to Colombo, even after traffic dropped owing to LTTE attacks in Colombo in July. The domestic ``leader'' has decided to pass on any additional insurance cover burden to its passengers.

The most significant fallout of the terrorist attacks has been the condition imposed by insurance companies with regard to third-party coverage and passenger surcharge. As against a third- party cover of $1.5 billion, insurance companies - who might go bust paying claims for the four U.S. carriers involved in the attacks on the WTC, the Pentagon and the mishap in Pittsburgh - have put a cap of $50 million.

Airlines have been asked to cover the gap on their own or ask their Governments to bail them out. United Airlines and American Airlines, whose planes were involved in the attacks, have been bailed out by the U.S. Government, as also Lufthansa, British Airways and a few others by their respective Governments.

The other condition imposed by insurance companies is a surcharge of $1.25 per passenger for coverage cost. Airlines are undivided on whether to pass this on to passengers or absorb the additional cost to keep the traffic in. Air India and Lufthansa are still undecided about what they want to do, but British Airways has decided to absorb it, while Singapore Airlines will charge this from the passengers. In the domestic sector, IA has decided to pass this on to its passengers, while Jet Airways will absorb the additional surcharge.

However, all India-based airlines have decided to approach the Government to bail them out on the issue of third-party insurance cover. The Minister for Civil Aviation, Mr. Shahnawaz Hussain, has requested the Union Finance Ministry to accede to the demand.

In addition to these operational costs, Air India and Indian Airlines are faced with the leasors of their newly-leased aircraft insisting on insurance guarantees as third-party claims. Since Air India has not received its ``Letter of Comfort'' from the Government for its U.S.-based leasing companies, GCAS and Singapore Airlines, it has had to ground all of its four newly- hired Airbus A-310s.

In times such as these, instead of moving fast as the Governments of the U.S., Germany, the U.K. and Singapore have done, the Indian Government is dragging its feet.

It is feared that indecisiveness on the part of the Government like in the case of disinvestment and budgetary support to Indian Airlines for fleet augmentation or for acquiring turbo- prop aircraft, will sound the death knell for India-based airlines. If anything, recent events have shown that the Government's hold on these airlines is total.

Indian Airlines disinvestment is off. Air India's disinvestment is in the doldrums. The privatisation of airports in the four metros and Bangalore and the disinvestment of the Hotel Corporation of India are dragging along.

On the tourism side, there is a certain gloom in the industry. The issue of rationalisation of taxes has been hanging fire for ages. The Tourism Policy has been in the making for more than two years now. The insensitive and unseemly raids on the prestigious Palace-on-Wheels in Rajasthan affected tourist response.

In the post-September 11 phase, cancellations of major events such as the International Film Festival, the Afro-Asian Games, charters to Goa and now reportedly the Pushkar festival in Rajasthan has hit the industry hard.

Yet, there is optimism in certain quarters. The Confederation of Indian Industry has predicted that the slump is temporary and that the market will pick up after two months. Interestingly, the Director-General of Tourism, Mr. V. K. Duggal, shares this optimism. Though he admits there is a sharp downward trend in the industry in arrivals from North America, the U.K. and the rest of Europe, he feels that if the situation normalises, group tours would be back.

In a swift change in tack, the Tourism department will now run promotions in South East Asia and neighbouring countries. It is making promos on Indian tourism with foreign visitors to project in these countries that India is a safe and secure destination.

In India, security at airports was enhanced to standards laid down by the International Civil Aviation Organisation (ICAO) following the hijacking of Indian Airlines flight IC-184 from Kathmandu to Kandahar in 1999. Under the persistence of the former Minister of State for Civil Aviation, Mr. Chaman Lal Gupta, the Bureau of Civil Aviation (BCAS) and the Directorate- General of Civil Aviation (DGCA) along with the Airports Authority of India (AAI) set in place severe security norms. A dedicated force of the Central Industrial Security Force (CISF) was deployed at 20 airports in the first phase.

Now of course, the Civil Aviation Ministry is deploying CISF personnel at all metro and hypersensitive airports. Quick- reaction teams of the National Security Guards (NSG) have been added to the security teams at such airports.

Intelligence agencies have virtually taken over some of the metro airports and close circuit television cameras have been installed at strategic points. Sky marshals have been deployed on various flights. The BCAS conducts surprise checks at all airports.

It is interesting to note that in a people's poll conducted in the U.S. after September 11, only 30 per cent blamed it on FBI and CIA intelligence failure, but 57 per cent blamed poor airport security for the hijacking of the four aircraft which were then used as human bombs. Since then America's Federal Aviation Administration (FAA) has banned curbside check-ins and entry of non-passengers inside airport terminals and asked airlines to deploy air marshals on board among other things.

On the one hand, U.S. carriers and the Boeing Company have announced massive job cuts fearing a long-term economic slowdown, on the other, the U.S. Government has announced a $ 12 billion bailout package for the aviation sector.

Just when the aviation sector had begun to come out of a global recession, the terrorist attacks have set it back. The fluidity in the situation has placed airlines in a fix. Most do not know whether to plan short-term or long-term.

Airlines operating to India would be in deep trouble if the airspace over Pakistan were to be closed when the U.S. chooses to take action in Afghanistan. The airspace over Afghanistan is already closed.

Closure of airspace over these two countries would affect flights from the Gulf and Europe which would have to take a long detour to reach the north of India including Delhi. It seems, for the Indian aviation and tourism industry, the worst is still to come.

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